What Does it Mean to Sign a “Confession of Judgment” Agreement?

By Robert Jacovetti

Before entering into a Merchant Cash Advance (MCA), it is important to understand how you, as the borrower, can be held responsible for repaying this loan. An MCA allows a business owner to pay back the money owed to the lender by forfeiting a portion of the business’s credit card transactions from each day. However, this can cause issues when the business is not making the amount it was originally intended to each day.

To ensure they receive their money, lenders of MCAs often persuade their borrowers to sign a document called a Confession of Judgment. When you sign one of these documents, you are accepting liability and agreeing to the number of damages outlined in the document. People use these documents to avoid the intricacies and complications of bringing a dispute to court. This type of favors the lender, and ultimately sign away the rights of the borrower to make a claim against the lender in the future for what they may perceive as an unfair payment.

When it comes to MCAs, lenders sometimes do not require that a borrower provide collateral, which creates an unsecured advance. Instead, a lender will often require a confession of judgment. This can replace collateral because a confession of judgment allows the lender to place a lien on a bank account in the case that a borrower defaults on the cash advance. The danger in this is that it prevents the borrower from being able to access his or her account and tends to result in a business’s failure once the borrower defaults on a loan.

A confession of judgment typically involves the borrower agreeing that he or she owes a certain amount to the lender. It also includes that the borrower will voluntarily agree to a court’s decision should a dispute arise about the amount owed or whether the borrower has paid the lender. The document essentially proves that the borrower agreed to any court judgment against him or her if the agreed upon amount of the MCA is not paid to the lender.

The main criticism of a Confession of Judgment is that it does not allow the defendant—or borrower—the chance to construct a decent defense, as it allows the lender to take the document to court to be resolved without the borrower ever being notified of the proceedings. It essentially waives the borrower’s right to adequately prepare for a trial or to have the opportunity to go to trial altogether. The confession of judgment already acts as the confession to claims made against the borrower by the lender upon signing it. As a result, the borrower must face the consequences the lender and the court decides on.

While signing a confession of judgment can make a case involving MCAs more challenging, it is not dispositive and can be overcome. If you have defaulted on an MCA or plan to, and you have signed a confession of judgment, contact an experienced debt relief attorney. The Jacovetti Law, P.C. is experienced in matters involving MCAs and will work hard to advise clients of their best options based on their financial situation. To schedule a free 15-minute telephone consultation or office visit, call our New York debt relief lawyers at (516) 217-4488 or fill out our contact form.